The Bureau of Economic Analysis said that the U.S. economy grew 2.5 percent in the second quarter. This was faster than the 1.7 percent reported originally, but only slightly higher than consensus estimates. Still, even with the faster growth rate, real GDP rose just 1.8 percent in the first half of the year, which remains disappointly slow. The one consolation might be the fact that growth has accelerated over the past three months, from 0.1 percent in the fourth quarter of 2012 to 1.1 percent in the first quarter to 2.5 percent in the last one.
The largest change in this revision came from a better-than-originally-predicted export picture. This was largely expected after the strong trade numbers for June. Goods exports, in particular, were up 10.1 percent in the second quarter, with goods imports rising 7.1 percent. Whereas net exports were originally subtracting 0.81 percentage points from real GDP, the newer data now suggest a neutral contribution. This alone was enough to boost output significantly from its 1.7 percent estimate to closer to the latest revision figure.
The strongest elements in the U.S. economy continue to be consumer spending and business investment. These two factors added 2.69 percentage points to real GDP, up from 2.56 percent earlier. Goods consumption alone contributed 0.73 percent, helping manufacturers. On the investment side, there were strong contributions from housing and nonresidential structures and some equipment spending. Nonfarm inventories were also higher than originally predicted.
Meanwhile, government spending provided more of a drag than previously estimated, subtracting 0.18 percentage points instead of 0.08 percent. Reduced defense spending and tighter state and local government budgets were largely to blame. While the subtraction from real GDP was less than prior quarters, government’s contribution to real GDP has been negative now for 12 of the past 15 quarters. With further budget cuts expected moving forward, that is not expected to change.
Overall, these numbers provide some comfort that growth in the U.S. economy was faster in the second quarter than originally thought, and the fact that exports led the revision is certainly good news for manufacturers, particularly heading into the third quarter. Yet, 1.8 percent growth in the first half of the year is hardly robust, and policymakers would be wise to pursue actions that would lift growth moving forward. While manufacturers are cautiously optimistic about growth in the second half of the year, there continue to be headwinds that make that less than assured.
Chad Moutray is the chief economist, National Association of Manufacturers.
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